CLIENT PUBLICATION Financial Restructuring & Insolvency | August 9, 2016 Judge Chapman Flips the Script US Bankruptcy Court for the Southern District of NY Grants Noteholders’ Motion to Dismiss Based on Lehman’s Failure to State Claim With Respect to Flip-Clause Litigation On June 28, 2016, in what essentially was a clean sweep for the noteholder and trust certificate holder defendants (the “Noteholders”), the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) granted an omnibus motion to dismiss Lehman Brothers Special Financing, Inc.’s (“LBSF
What happens to funds held by a Chapter 13 trustee (the “Trustee”) in the event that a Chapter 13 debtor dismisses her case voluntarily? That’s the question that was addressed by the United States Bankruptcy Court for the Eastern District of Michigan (the “Court”) in a recent opinion.1
In this case, the Chapter 13 debtor (the “Debtor”) owned a residence with significant equity. The Court confirmed a plan pursuant to which the Debtor would retain her residence and make monthly payments to the Trustee in the amount of $8,500.75 for 60 months.
The purpose of filing for Chapter 7 bankruptcy is to discharge debts. But even after obtaining a discharge, a debtor is not totally in the clear. A recent case in the United States Bankruptcy Court for the Western District of Michigan involves an adversary proceeding in which the United States Trustee sought to revoke a Chapter 7 debtor’s (the “Debtor”) discharge.[i]
In a June 3, 2016 decision1 , the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”) invalidated, on federal public policy grounds, a provision in the debtorLLC’s operating agreement that it viewed as hindering the LLC’s right to file for bankruptcy. Such provision provided that the consent of all members of the LLC, including a creditor holding a so-called “golden share” received pursuant to a forbearance agreement, was required for the debtor to commence a voluntary bankruptcy case.
On May 16, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz[1], ruling that the term “actual fraud” in section 523(a)(2)(A) of the Bankruptcy Code includes forms of fraud that do not involve a fraudulent misrepresentation.
Chapter 13 bankruptcy allows debtors to confirm plans that provide for the payment of their debts through future earnings while, at the same time, retaining their assets. If a creditor wishes to receive payments pursuant to a debtor’s plan, the creditor must file a proof of claim. And it must do so timely.
In its recently issued decision in Husky International Electronics, Inc. v. Ritz, a 7-1 majority of the Supreme Court has clarified that intentionally fraudulent transfers designed to hinder or defraud creditors can fall within the definition of “actual fraud” under Section 523(a)(2)(A) of the Bankruptcy Code and can sometimes result in corresponding liabilities being non-dischargeable in a personal bankruptcy proceeding.1
The U.S. Bankruptcy Court for the Eastern District of Michigan recently considered the issue of whether a Chapter 7 trustee may bring a cause of action against a debtor for damages caused to the bankruptcy estate by the debtor’s alleged failure to comply with the debtor’s duties under section 521 of the Bankruptcy Code.
In a March 29, 2016 decision,1 the United States Court of Appeals for the Second Circuit (the "Court of Appeals") held that creditors are preempted from asserting state law constructive fraudulent conveyance claims by virtue of the Bankruptcy Code's "safe harbors" that, among other things, exempt transfers made in connection with a contract for the purchase, sale or loan of a security (here, in the context of a leveraged buyout ("LBO")), from being clawed back into the bankruptcy estate for distribution to creditors.
Bankruptcy is all about the debtor’s assets, specifically how many and who gets them. The reason that many bankruptcy cases are contentious is that the parties often disagree about the amount of assets available for distribution to creditors, as well as how the assets should be divvied up.